Here are a few passages which I have drafted for addition to my IPS:
Note that I totally made up the term ECaR to describe what I was trying to control. If someone knows of a better or more "proper" term for this quantity, please chime in!Leveraged assets are to be invested in long-only [non-inverse] ETFs which cannot lose more than 100%. The equivalent-capital-at-risk (ECaR) in leveraged assets shall never exceed 50% of total portfolio ECaR. For example, a holding of $1000 in a 3x ETF has an ECaR of $3000, and must therefore be offset by $3000 in unleveraged assets in the portfolio. As a practical matter, this results in an upper limit for 3x leverage of 25% of the portfolio. Since the leveraged assets have a higher expected return than the unleveraged assets, they must therefore begin with an initial investment considerably less than 25% so that they do not exceed this threshold over the lifetime of the investment. Analysis based on my antipated investment horizon and relative returns suggest an initial leveraged component equal to approximately 9% of my investable assets is appropriate for this purpose.
I will continue to edit and adjust this post as my draft develops and to incorporate feedback from the community. Thanks in advance for your wise counsel!My investment performance will be monitored and reported on a quarterly basis coinciding with the final trading day in each of the months of February, May, August, and November. Any rebalancing, where indicated by this tax and allocation considerations, will be effected on this date. For accounts subject to automatic contributions, new monies shall be directed to underweight portions until the target allocation is reached.